Big changes in public sector pay and rewards systems are needed to get the most out of staff and to achieve step change in service delivery, according to a report today from the CBI. The organization points out that in the last six years the number of public sector employees has gone up by more than half a million, leaving pay accounting for more than a quarter of total Government expenditure.

The CBI is calling for a smarter use of pay and rewards to motivate staff and to achieve a meaningful change in performance and the quality of public service delivery. The report argues that more public sector organisations need to take account of market rates and to reflect pay levels for equivalent roles instead of relying on national structures.

CBI Deputy Director-General, John Cridland said public services had benefited from vast additional investments in recent years and getting the most out of those resources was one of their biggest challenges. “The Government is missing a trick by failing to deploy smarter HR techniques. Not using pay and reward as genuine incentives to improve performance and service delivery is a lost opportunity,” he said.

The report says the more rigid pay structure in the public sector allows less scope to reward employees for outstanding performance and says public managers should have more flexibility in determining pay or bonus schemes. It also dispels the myth that pay in the public sector is lower than in the private sector. In fact, it says, the Government’s own figures show the median rate of pay in some public organizations is 15 per cent ahead of that in private companies. The CBI also draws attention to the cost of public sector pensions, which, it says, must be brought under control in the longer term and better aligned with private sector provision so the taxpayer does not face big costs. Public sector liabilities, it says, are now thought to lie anywhere between 530 million and a billion pounds.

The report’s key recommendations include pay being determined locally against market rates; using pay more positively to enhance service delivery; improving service delivery by strengthening local management; improving communication with employees to raise awareness and appreciation of the full value of their pay and benefits packages and ensuring tight pay discipline in the coming spending round.

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